The unsuppressed nature of my own common sense tells me that in the worst of real estate markets, the best approach to buying real estate is to look for value. This should be the case even in the most overheated real estate markets, but in the most intense real estate moments, a penchant for value tends to give way to a belief that price and the accompanying value are the least important aspects of the purchase. During 2010, there is no one, except perhaps some Realtors in Florida who seem to me to have an uncanny ability to stay upbeat and naive even in the most difficult markets, that would openly admit that value is not paramount. Yet, even with this obvious truth, value is largely being neglected by even the most budget minded buyers.
The Lake Geneva real estate market is overflowing with value at the moment, but the value is generally only obvious at properties that are in need of renovation or significant remodeling. I’ve always thought this to be the case here, but in times past, buyers would purchase homes in stellar locations with the goal of pursuing a renovation on their own dime. At the height of the market, buyers were generally less enamored with projects and more impressed by gleaming fir floors and appliances with V’s or W’s on them. Buying over improved properties at over inflated prices is bad but slightly understandable in a terrific market, but in the worst real estate market of the past thirty years? Not so much. In much the same way that we may nod our heads in agreement when pastors preach on Sundays and then leave to resume a life that has no reflection of the truths we pretended to agree with, most level headed buyers would agree that value is key.
And if value is key and Lake Geneva is the goal, the real estate here is simple to understand. Value is found in location and association amenities and in little else. A soaring ceiling and huge cut granite fireplace is indeed nice, but does it create value? If the location is superior, all unique features will aid in confirming value, but in the absence of a rarefied location, a nice fireplace is nothing more than an expensive entertainment center. At Lake Geneva, value is easiest to identify in terms of location, which is again, something buyers understand on a very basic, if unpracticed level. Location is the key to value, whether you’re in Northbrook or the North side of Fontana, and apart from an ideal location there is very little to suggest that value can be found in anything else.
Now that we agree, it’s fun to look at the market to see how value is blatantly overlooked. Since I can only talk in depth about my own listings without getting in trouble, let’s take a look at my humble cottage at 521 Wilmette in Williams Bay. This cottage was reduced, yet again, to $379k. The original asking price was $499k, and a value at some point in 2006 at the height of the market was probably around $600k. The home immediately to the south, with the same location, same view, same lake rights, but with an overimproved structure, sold for $1.1MM+ at the peak. The humble cottage is now waiting for a buyer, and the price is so insanely low that if I weren’t a buyer with a need to flip, I’d buy it myself. The property screams value, but because the house smells like an old basement and looks only marginally better on the surface, buyers ignore it, instead looking for greener pastures and shinier floors. There’s huge value here, but since the value comes with the added requirement of a renovation, buyers overlook it.
There’s a new listing at Bay Colony for $789k. This condo is beautiful, with fit and finish that are worthy of a top-end asking price. The unit is directly below an identical, if original, unit that I have on the market for $599k. Again, the unit I have available is in condition that would only suit someone who dropped anchor in 1978, but the square footage, the view, and the amenities are all the same. I’d guess I could turn my unit into the unit below for roughly $100k. Doing some quick math, if you plug in a number that my unit would sell for, add in $100k, and look at your total outlay, it’s going to be a ton less than the unit below could be purchased for (based on the asking price). There’s value in improving properties, but buyers would still, even in this market, rather buy properties that are improved even if the price tag reflects an inflated fee for those improvements. Value might be king in our minds, but in actuality we view the way a Viking stove glistens in the sun light on a crisp fall morning is far sexier.
Value is everywhere, but at Lake Geneva, it’s most prevalent in homes that need work. If you’re not afraid of swinging a hammer or hiring someone who can, there is value to be had. Sales this year at the Lake Geneva Club, Harvard Club, and soon to be at Belvidere Park reflect buyers who are able to see value in the absence of designer finishes. In the long run, those buyers will be secure in their investments, while buyers who’d rather reward a sellers own elbow grease will possibly find that they missed out on the best opportunities of 2010.